We are still at a "NO thank you"
During the last week we have seen Folketrygdfondet state "yes", SWONs extraordinary general meeting voting yes (97% of votes) and 66% of Crayons shareholders have accepted the bid. We also have listened to Artic and Pareto podcasts with board members talking about the beauty of the merger. I must admit, they are pretty good at talking about building a very good company (Crayon) and about the Industrial logic, but I still miss the honest communication about facts and what went wrong. We have also had the honor to be named "backward looking accountants" by Crayons board member, which we find amusing😁
Let's summarize our perspective and share our future expectations.
Industrial logic
SWON: It's big on cost (and potentially bigger on income)
CRAYN: It's big on cost (and potentially bigger on income)
Hvaler Invest: We agree, the logic is obvious
Previous mergers have failed - why is it different this time?
SWON: They skip the question and blame others for previous failures (but majority shareholders have been there all the time)
CRAYN: No word about value destruction post Rhipe acquisition
Hvaler Invest: Mergers are difficult, this one could go well but...when you either hide the truth or are in denial we don't trust you
Volume and Market share development (fact)
SWON: Worst in world market last 5 years
CRAYN: Nr. 1 in the world market last 5 years
Hvaler Invest: Both will continue their path; you'll see it again in Q1(but then it's too late)
Consultancy business (fact)
SWON: Worst in Europe
CRAYN: Improving a lot
Hvaler Invest: In SWON you'll see future write downs and market exits. Crayon will continue to improve, and they hire people as we speak
Profitability 1 - Ebit (fact)
SWON: Worst in world market last 5 years
CRAYN: Nr 1 in world market last 5 years
Hvaler Invest: Both will continue
Profitability 2 - both companies say they will improve in 2025
SWON: New cost initiatives deliver 50 mill CHF or better
CRAYN: Consultancy business on the right track, margins are improving
Hvaler Invest: We agree on both statements above, but negative growth and lost Microsoft margins will hit SoftwareOne a lot. "Adjustments" and bullshit earnings will continue in SoftwareOne
Guiding history and the future
SWON: Constantly miss and mislead the market
CRAYN: Have delivered according to guiding (do some mistakes both ways)
Hvaler Invest: Both will continue. In Q3 and Q4 (after the new board (Q3) and new management (Q4) there were few, if any, signs of improvements in SoftwareOne's communication to market. They continue to mislead the market
Cash generation last years and in the future
SWON: Burning billions of NOK fast
CRAYN: Previous problem solved
Hvaler Invest: SWON will continue burning (but less) and Crayon will generate piles of cash
Global vs Regional
SWON: It's necessary to go global
CRAYN: It's important to go global
Hvaler Invest: Our peer studies show that regional players outperform global once on profitable growth and value creation. It will continue
2025 guiding on volume and profitability
SWON: 2-4% growth
CRAYN: 15-20% growth
Hvaler Invest: Both will fail on volume, but Crayon will still be nr 1 worldwide. Adjusted Ebitda guiding is not relevant to compare since SoftwareOne have too much bullshit earnings
Share price development
SWON: 66% down last 12 months. Down 12% since announcement
CRAYN: 69% up last last 12 months. Down 14% since announcement
Hvaler Invest: Both will improve in 2025. Crayon because profitable growth will continue and SoftwareOne because cost savings will happen, and a historical low valuation will gradually turn positive. Upside on both is high on a stand-alone basis
Shareholder support
SWON: 97% voted yes in the extraordinary AGM April 11th
CRAYN: 66% acceptance so far, 90% needed
Hvaler Invest: Time is running, SoftwareOne will not reach 90% before April 29th
Hvaler Invest target price on stand-alone basis
We have a target price on SWON at 7,6 CHF (up 48%) and we have Crayon at 195 NOK (up 70%). We have a lower target on the 2 combined, but still with an upside to today’s situation.
Don't read our scepticism in a way that this decision is vital for Hvaler Invest.
We have been investing in less than 2 years in Crayon, we have a cost price of around 80 NOK, and we think the market the 2 companies operate in will continue to be a good one.
We simply think that Crayon is better off alone, and we are not impressed by the terms negotiated. If the "theoretical" deal at 172,5 NOK had been hard fact for all shareholders, we would probably have accepted 🙂
What if they "waiver" a 90% acceptance rate and go to a lower threshold? Let's wait and see - we'll keep you posted on our position.
Stay tuned,
David and Sverre
Hvaler Invest AS
Lillestrøm, Norway
14.04.25
Disclaimer:
Hvaler Invest is a significant shareholder so you cannot trust us (or perhaps you can?)